Africa's Capitalist Revolution

Preserving Growth in a Time of Crisis

ETHAN B. KAPSTEIN holds the INSEAD Chair in Political Economy at INSEAD in Fontainebleau, France, and is a Visiting Fellow at the Center for Global Development, in Washington, D.C. He is the author, with Nathan Converse, of The Fate of Young Democracies.

In one of the great ironies of history, Africa may well emerge from the current global recession as the only region in the world that remains committed to global capitalism. While the tired industrialized nations of the West are nationalizing their banks and engaging in various forms of protectionism, Africa remains open for business -- promoting trade, foreign direct investment, and domestic entrepreneurship. Analysts in the industrialized countries are concerned that foreign aid flows to Africa might drop because of the recession, but Africans themselves are much more worried about rising barriers to their exports and diminishing private investment from abroad, which could impede the continuation of the impressive economic progress the continent has made over the past decade.

It is still a well-kept secret that the African continent has been in the midst of a profound economic transformation. Since 2004, economic growth has boomed at an average level of six percent annually, on par with Latin America. This rate will undoubtedly decline as a result of the global financial crisis, but the International Monetary Fund still projects growth of around 1.5 percent for this year and four percent for 2010 throughout Africa -- a relatively healthy figure by today's depressing standards. International trade now accounts for nearly 60 percent of Africa's GDP (far above the level for Latin America), and foreign direct investment in Africa has more than doubled since 1998, to over $15 billion per year. Overall, private-sector investment constitutes more than 20 percent of GDP. Furthermore, since 1990, the number of countries with stock markets in sub-Saharan Africa has tripled and the capitalization of those exchanges has risen from virtually nothing to $245 billion (that is, outside of South Africa, which has long had an active stock exchange). These "frontier" markets have, until recently, given investors huge returns compared to those found in other emerging economies.

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